Adapted from “The Fateful History of Fannie Mae,” by James R. Hagerty, published Sept. 4 by History Press. This is the first of four blog posts related to his book.

Paul Volcker is known these days as the inspiration behind the Volcker rule, a set of federal regulations limiting the risks banks can take with their own money. Two decades ago, however, the former Federal Reserve chairman helped Fannie Mae evade tighter regulatory restraints.

Fannie, a government-chartered provider of funding for home mortgages, in 1990 was facing closer scrutiny from Congress over the risks it took by rapidly increasing debt as it gunned for growth.

The collapse of hundreds of savings-and-loan institutions during that era had forced Congress to look harder at other potential bailout candidates, including Fannie and its smaller rival, Freddie Mac. The Treasury was working on a report that would conclude, among other things, that a lurch in interest rates of four or five percentage points could wipe out Fannie’s entire net worth. That report would bolster the case of lawmakers like U.S. Rep. Jim Leach, an Iowa Republican who wanted Fannie and Freddie to hold more capital as a buffer against financial accidents. Read More »